No signs of business recovery — BCC

The BCC’s Quarterly Economic Survey (QES) for Q4 2022 showed key economic indicators have stabilised at concerningly low levels, following significant declines in Q3.

The survey of over 5,600 firms — 92 per cent of which are SMEs — revealed business confidence, conditions, and sales have stabilised at low levels, while inflation remains the top external factor of concern.

The report found that 36 per cent of firms surveyed expect a decline in their profitability this year and just 33 per cent of firms experienced an increase in sales over the past three months, while 25 per cent of firms reported a decrease.

Hospitality firms are the least likely to report improvements.

More firms also reported taxation (38 per cent) and interest rates (43 per cent) as growing business concerns.

The research took place between 7 November and 30 November, across the period the government’s autumn statement was announced.

The percentage of firms reporting increased domestic sales has stabilised at the low level reported in Q3. Only 33 per cent of firms experienced an increase in sales over the past three months, while 25 per cent of firms reported a decrease in sales and 42 per cent reported no change.

Activity in the retail and hospitality sectors remained particularly weak. Both sectors are firmly in ‘negative territory’, with more firms reporting a decrease in sales than an increase over the past three months.

The hospitality sector is also struggling to operate at full capacity; three-quarters (74 per cent) of hospitality businesses reported they are operating below capacity.

Only 24 per cent of businesses said their cash flow has increased over the last three months, while 30 per cent have seen it decrease.

After business confidence plummeted in Q3, firms continued to report a negative outlook for the future in Q4. Less than half (44 per cent) of firms expect their turnover to increase over the next 12 months, while 25 per cent expect a decrease. Those expecting turnover to increase remained 10 percentage points down from a level of 54 per cent in Q2 2022. 

Profitability confidence remains much weaker than turnover confidence and has stabilised at COVID-19 crisis levels. Only one in three (34 per cent) businesses believe their profits will increase over the coming year, while 36 per cent now expect a decrease.

Increases to business investment remained low. Only 21 per cent of firms reported an increase to plant/equipment investment over the past three months, while 57 per cent reported no change and 22 per cent reported a decrease.

The percentage of firms expecting their prices to rise over the coming months (60 per cent) remained near record highs but is showing slight signs of easing, down from 62 per cent in Q3.

Concern about inflation also remains at record highs; 80 per cent of firms cited inflation as a growing worry to their business. But there are also significant jumps in the percentage of firms concerned about taxation (38 per cent) and interest rates (43 per cent).

David Bharier, head of research at the British Chambers of Commerce (BCC), said the results provided further confirmation that business conditions deteriorated significantly in the second half of 2022.

“The situation remains critical for the majority of SMEs who find themselves cut adrift by monumental inflationary pressures, often driving triple-digit percentage cost increases, particularly on energy,” he said.

“Business confidence remains worryingly low, with only a third of firms reporting improvements to sales, and less than a quarter reporting increased investment. The widespread economic damage caused by COVID-19 shutdowns has been compounded by subsequent inflation, global trade crises, and new trade barriers with the EU. For many SMEs, the cost of doing business is now simply too high.

“While the change in administrations from Truss to Sunak may have stabilised markets, the Autumn Statement on 17 November appears to have had no impact on business confidence. Indeed, while inflation is still by far and away the top concern for businesses, taxation has now become far more of an issue for SMEs.

“These results reaffirm the need to create a stable environment for businesses to invest, with energy, improvements to infrastructure, access to skills, and removal of trade barriers, particularly with the EU, all top priorities for firms.”

Director general of the British Chambers of Commerce, Shevaun Haviland, said the outlook from businesses remained bleak. 

“Now, more than ever, we need to create the right conditions for firms to invest and grow,” she said.

“Providing businesses with clarity regarding the new energy support package must be top of the Government’s agenda for the New Year, after they failed to do so before Christmas.

“We urge Government to promote business growth by investing in public infrastructure and incentivising international trade, with a particular emphasis on making the UK the global hub for green innovation.

“Barriers to trade must be removed in order to allow firms [to] realise their full trading potential. The impasse over the Northern Ireland Protocol continues to loom and the UK Government must work with the European Commission to reach a negotiated solution on its business compliance burdens.

“The Government’s New Year’s resolution should be to put business support for SMEs at the heart of its agenda and get the UK back on the road to recovery.”